Does DeFi Lose Because Bitcoin Wins?
With all the hype that there’s been surrounding Bitcoin’s rise to levels not seen since 2017, one would almost forget that in financial markets all winners mostly come with necessary losers as invested money tends to shift from one good to another. Crypto enthusiasts have remarked that the noted loser under Bitcoin’s gain was none other than the world of DeFi coins, which got hyped over the summer (as Bitcoin traded in a boring range between $10k and $12k for months on end), and lost out over the autumn.
Is it correlated?
In the past day, Google payments engineer Tyler Reynolds launched an interesting thread discussing the subject that has a lot of investors worried: is the gain of Bitcoin correlated to the loss of DeFi?
Third and finally:— Tyler Reynolds (@tbr90) November 2, 2020
While there is a small amount of VC capital in DeFi, there just isn’t an established ecosystem of to carry a DeFi project through multiple capital raises.
There are probably fewer than 10 VC firms willing to write $10M checks for DeFi projects.
A lot of people are scratching their heads in disbelief that amazing DeFi projects are falling so much from their highs. While you may be surprised it’s happening now, you shouldn’t be surprised it was going to happen.
According to him, DeFi will bounce back eventually though, stating:
None of this means that DeFi is in trouble. The protocols will keep chugging away block by block. While it may not be a fun time to be an unhedged long, it may also be an amazing time to build some conviction positions as everyone else runs for the exits.
One of the more remarkable downers in the past few weeks is YFI or Yearn Finance as you may know it. The Andre Cronje coin wrote headlines in itself by simply flipping the price of Bitcoin two months ago during the DeFi hype of the summer (remember back in August when all those Food Coins were shooting up?) and even rose all the way up to a $40k price per coin.
As DeFi investment money has been repositioned in Bitcoin in the past few weeks, YFI has dropped down to a $10k level again, allowing the Bitcoin price to overtake it. YFI fans on social media are of course classifying this as an excellent buy opportunity, but it seems that by now Cronje has already moved on to other projects, seeing his Keep3r coin as of late.
Will DeFi bounce back and can YFI rise up again? The next few weeks will bring clarity.